After Carillion: nationalise all the big public contractors!

Submitted by AWL on 16 January, 2018 - 10:06
Author: Martin Thomas

The labour movement should demand that not just Carillion, but all the big public service contractors, Serco, G4S, Capita, should be nationalised with minimum compensation, and their public contracts brought back in-house.

Their workers - including agency staff and formally-self-employed contractors - should be brought into union-negotiated public-sector pay and conditions, and the services should be run under the democratic control of the workers and elected public authorities.

We must demand damage limitation for Carillion workers. Carillion's public-sector contracts should be taken in-house, and its private-sector contracts taken into public ownership.

Carillion employees in social housing maintenance in Northern Ireland voted unanimously at a union meeting on 15 January to demand direct employment by the Northern Ireland Housing Executive. Most of Carillion's work in Northern Ireland is for the Housing Executive.

Carillion has many employees on contracts in Canada and the Middle East as well as its 19,000 in the UK: we should support the Canadian labour movement in fighting to save the jobs in Canada, and demand the British government take over the contracts in the Middle East and run them under union-negotiated conditions.

With Carillion, this is all damage limitation. Carillion, like the other big "services companies", is different from how we usually imagine big capitalist corporations.

It has very little fixed capital. It hires or leases equipment and offices, contract by contract. The wealth created by its workers' labour over the years is not crystallised into solid fixed assets which can be seized for redress. It has all already been siphoned off into dividend pay-outs and huge salaries and bonuses for the top bosses.

Carillion bosses have put it into "compulsory liquidation". Usually bankrupt companies go into "administration", where an outside official takes control, sells off some assets, negotiates with the creditors, and tries to refloat the company, usually chopping jobs and demanding wage and pension concessions from the remaining workers.

Compulsory liquidation is different: the outside official, the Official Receiver, has no remit but to sell off assets, wind up operations, and pay the creditors whatever fraction can be raised of what's due to them.

The Carillion shareholders who failed to pocket their fat dividends from the good years and walk away in time have already lost everything, so nationalising Carillion without compensating them is of little consequence.

As much as possible should be clawed back from the Carillion bosses. KPMG, the giant accountancy firm that certified Carillion as in good health only months ago, should be fined or expropriated. But what the media say is true: "the taxpayer" will have to pay much of the cost of saving the services worked by Carillion, the jobs on its contracts, the jobs in supply companies owed money by Carillion, the Carillion workers' pensions. Only, the labour movement should demand that the rich be taxed - that the rich "taxpayer", not workers, cover the costs.

The cream has been skimmed off and consumed years ago. The lessons will have been learned only if the whole system of doing public contracts through private profiteers is ended.

"Outsourcing" has been endemic since the 1980s. Stable, often well-unionised, public-sector workforces are broken up and the workers dispersed to a variety of contractors. Pressure on the workers to concede worse pay and conditions is kept up by periodic reallocation of the contracts.

The work is done in a cheapskate, cost-cutting way. Generally the contractors do not face the same market pressures to get out a decent product that companies selling day-to-day to each other, or to the public, do.

The ideological spin is that "outsourcing" means that every firm narrows down to its "core competencies", and each job is done by firms best qualified for it, rather than every firm or public enterprise doing a diverse range of operations. In fact, jobs are hived off to giant conglomerates with no "core competency" at all other than money-grabbing.

The profits are often juicy, as they have been for all the big "service companies" in Britain with the PFI schemes which flourished under the New Labour government.

The Blacklist Support Group of blacklisted construction workers reports: "Carillion admitted in the High Court that they blacklisted workers who complained about safety on their building sites, while at the same time milking public sector contracts for millions... In any civilised society, these people [Carillion bosses] would be facing criminal charges.

"When you invite blacklisting human rights abusers to run the NHS and school meals, don’t be surprised when vampire capitalism attempts to suck the taxpayer dry".

The profits are not "ploughed back" into fixed investments. A lot is paid out in dividends or in bonuses to bosses. Long-term PFI incomes, for example, are often "cashed out" quickly by selling the entitlements on to another company. The portion "ploughed back" is used to expand not by raising technology but by buying other companies, as Carillion bought up McAlpine, Mowlem, etc.

Long periods of public-service cuts put pressure on the firms. In those periods, the bosses turn them into a sort of "Ponzi scheme" to keep the flow of bonuses and dividends going.

As the Financial Times explained, Carillion "had, in effect, become a lawful sort of Ponzi scheme - using new or expected revenues to cover more pressing demands for payment". The company took out more loans, wrote new future contract revenues into its books to back up those loans, stretched its delays in paying suppliers, and kept on claiming profitability and making big pay-outs. According to former Lib-Dem pensions minister Steve Webb, Carillion's dividend pay-out "increased in each of the 16 years since the formation of the company".

As late as last May, Carillion boss Richard Howson declared that the company had made "an encouraging start to the year", with "increased revenue visibility". The accountants KPMG pocketed their ample fees and smilingly confirmed his story. Within a couple of months Howson evidently recognised that the gig was up.

He resigned, having gained £1.5 million in pay and bonuses for 2016. He got a deal saying he would still be paid his £660,000 base salary until October 2018, and the company changed its rules to guarantee such payments to ex-bosses in all circumstances short of legally-proven gross misconduct. Howson's successor Keith Cochrane, and former finance chiefs Richard Adam and Zafar Khan, have similar deals.

Even if Howson, Adam, and Khan will now fail to get their future promised payments, Howson has already had £100,000 or so of his pay-out.

The Labour front bench's statement on Carillion was disappointingly weak:

"It has been clear for months that Carillion has been in difficulty but the Government has continued to hand over contracts to the company even after profits warnings were issued.

"Jobs and public services are now at risk because the Tories were blinded by their commitment to a failing ideological project of introducing the profit motive into taxpayer-funded services.

"Labour urges the Government to stand ready to intervene and bring these crucial public sector contracts back in-house in order to protect Carillion’s employees, pension holders and British taxpayers".

It's not just Carillion. Bring all the big contracted-out operations back in-house!